Certain Risks Associated with Financial Instruments Investments

1. Let’s Put the Things that are Inaccurate About Selling Financial Instruments

2. Selling financial instruments are shares, bonds, treasury bills, units of investments funds, depositary receipts and other financial instruments traded on markets of financial instruments. • Selling financial instruments usually provide a certain return on investment – dividends are paid for shares, interest – for bonds, in addition, the market value of financial instruments may increase or decrease.

4. An investor always wants to get a bigger positive return; however, there is always a risk that the return can be negative. • Generally, the bigger the expected return on investment, the higher the assumed risk. In the event of an unfavorable market situation, the loss on investments in this case can also be significant. • Investments in financial instruments are inevitably associated with certain specific risks to be considered by investors.

5. Inflation risk • The selling financial instruments risk is otherwise known as the risk of reduction in purchasing power. • With inflation, prices of various consumer goods and services grow, which reduces the purchasing power of money, meaning that fewer goods can be purchased for the same amount of money.

6. This risk is especially relevant to non-invested funds or in cases where profitability of a selected investment is lower than inflation

7. Capital risk • It is a risk that investors will lose all or a part of invested funds. • This risk is directly associated with market characteristics of a specific selling financial instruments.

8. Market risk • This risk affects the entire capital market, when the value of investments may decrease due to changes in the following market factors: interest rate, exchange rate, the country's economic situation, price of financial instruments, etc. • This risk, as well as capital risk, is not directly associated with the issuer, it depends more on macroeconomic indicators.

10. Liquidity risk • It is a risk of not being able to return invested funds without incurring significant losses. • Having invested funds in illiquid financial instruments, it might so happen that they cannot be sold at a desired time or they have to be sold for a significantly lower price due to weak demand or the lack thereof.

12. Interest rate risk • It is a risk when changes in the market interest rate reduce the value of investments in bonds and other fixed-income selling financial instruments. The overall increase in interest rate has a negative impact on fixed-income investments. • Currency risk • It is a risk that the return on investments in non-local currency financial instruments can significantly decrease due to unstable foreign exchange rate fluctuations.

13. Option risk • It is a risk that once a reasonable decision to invest in a corresponding financial instrument turns out to be a bad one over time or no longer meets the expectations.

14. Investment timing risk • This risk is associated with improperly selected time of investment. It is a risk of reducing the return on investment due to improperly selected time of investment in selling financial instruments.